Financial Crime – Issues for Banks and Traders

Recent publicity concerning levies of fines has highlighted ever increasing regulation and monitoring of activities of banks operating in the UK by the Financial Conduct Authority.

Whilst most people are familiar with the penalties incurred for mis-selling of regulated products and breaches of US, UN or EU sanctions and embargoes, international traders should also be aware that the FCA have recently published a ‘Thematic Review entitled ‘Banks’ control of financial crime risks in trade finance.’

The FCA findings under this review will have a significant impact on the way banks interact with companies utilising trade services.

Between September 2012 and February 2013, the FCA visited 17 banks in the UK undertaking a focused review of risks and controls related to handling of trade services, particularly Documentary Letters of Credit and Documentary Bills for Collection.

The FCA are concerned with how banks design and implement controls for countering money laundering, terrorist financing and sanctions breaches in trade finance.

Our previous article, “Why is it taking so long to obtain a Confirmed L/C?” referred to potential delays arising from banks meeting their obligations to screen documents for breaches of US, UN or EU sanctions or embargoes.

Such breaches may arise from dealing with certain sanctioned parties, such as:

  • Countries
  • Financial institutions
  • Counterparties (overseas customers / suppliers)
  • Agents
  • Shipping Lines

The FCA review concludes that banks (with a few exceptions) generally have robust and sophisticated sanctions screening procedures to manage these risks.

Banks have however been found to fall short in other areas such as the controls around wider risk assessment, including:

  • Due diligence
  • Money laundering
  • Terrorist financing

To this end, the FCA have recommended a much tighter range of guidelines for the implementation of banks’ controls and procedures when handling trade finance transactions.

Clearly, banks will be required to exercise greater diligence in gaining a much deeper understanding of clients’ activities including (but not limited to):

  • Financial background and creditworthiness of clients
  • Nature and value of transactions – do they fall within the scope of a client’s ‘normal trading?
  • Nature of goods – are goods subject to an export licence? This is a very challenging area for banks who may not be able to easily determine if goods may require a licence under EU ‘dual use’ regulations for instance.

Exporters and importers should therefore be prepared for banks to ask more questions about trade activities prior to entering into an arrangement to issue, confirm or act on a nomination under Letters of Credit or process Documentary Collections.

Tip: When expecting a Letter of Credit, be proactive in speaking to the bank – provide information of the underlying transaction, including nature of goods and whether an export licence is required / has been obtained.

FCA Thematic Review – 2013

Click here to learn more about:

– Letters of Credit Training Courses in the UK & Europe

– Incoterms Training Courses

– Bank Guarantees Training Courses

– Import & Export Training Courses

2017-03-19T09:07:58+00:00 December 13th, 2013|